Lines of Credit - What you should know

A line of credit is basically a huge, cheap credit card and generally there is no term (versus a mortgage with say a 5 year term) so the bank (or whomever your creditor is) is really going all out to please their borrower with a line of credit. Although a line of credit seldom (if ever) has a term, most lines of credit are in fact DEMAND loans; this means that the lender can demand the funds be paid back (in full) at ANY time!

So, if you are lucky enough to get a line of credit make sure you “revolve” (pay it down to zero) at least once per year. Another unwritten rule, which applies to credit cards is never borrow more than 75% of the limit; I would suggest practicing this with lines of credit as well (if you can borrow $100,000, keep your balance below $75,000). Just think about it from the bank’s side - if you tell someone they can borrow $100,000 and they borrow the full amount and for 5 years they never pay more than the interest, then you have just lent them money with no amortization that could potentially never get paid off until the house sells.

We’re out of words.